July 31, 2020
The Ministry of Economy, Trade and Industry (METI) formulated new “Practical Guidelines for Independent Directors” based on the results of the discussions held by the Corporate Governance System Study Group (2nd Term) and hereby publishes it.
1. Background and purpose
Since the “Japan Revitalization Strategy -JAPAN is BACK-,” which Cabinet approved on June 14, 2013, stipulated corporate governance reform as a significant matter for companies’ growth strategies, companies have been dramatically increasing the number of independent directors and the ratio of such directors among their boards of directors.
To expand corporate governance reforms from the phase of formality to that of substantiality, it is considered important for independent directors of companies, who form the core of this expansion, to play more substantial roles and exercise their functions. Based on awareness of this problem, from November 2019 to January 2020, METI conducted a questionnaire survey targeting independent directors of companies listed on the first and second sections of the Tokyo Stock Exchange, which aimed to ascertain the current activities of such directors and challenges that they are facing. Moreover, METI held interviews with 42 independent directors and collected and organized best practices.
Based on the results of the survey and interviews, METI resumed a series of meetings of the Corporate Governance System Study Group (2nd Term) (chair: Mr. Kanda Hideki, Professor, Gakushuin University Law School; hereinafter referred to as the “study group”) from May 2020. Since then, the study group has held discussions on best practices, such as roles of which independent directors should be aware, such directors’ mindsets, their specific efforts, a support system that companies should provide, and it formulated “Practical Guidelines for Independent Directors” by compiling the discussion results.
2. Outline of the “Practical Guidelines for Independent Directors”
In line of the purposes of the Companies Act and the Corporate Governance Code, the guidelines provide well-organized roles and efforts which independent directors should play and make seen from practical viewpoints, clarify basic roles expected of such directors and, based on this, present best practices of specific efforts useful for independent directors to play such roles.
The guidelines consist of three chapters in total. Chapter 1 provides a compilation of key points which are particularly important for independent directors in playing such roles and developing their mindsets. Chapter 2 explains ideal approaches and specific actions that independent directors should take for building relationships with the board of directors and stakeholders so that such directors are able to play their roles, and Chapter 3 organizes ideal approaches to a support system that companies should build to help independent directors play their roles.